Labor Department sues BCBS Minnesota over provider tax on self-funded plans

Blue Cross and Blue Shield of Minnesota incorrectly imposed a state provider tax on self-funded health plan customers and violated its fiduciary duties under the Employee Retirement Income Security Act of 1974, according to a lawsuit filed against the payer by the Labor Department on Jan. 12.

Since 1994, Minnesota has imposed a tax on the gross revenue of hospitals, surgical centers, and other healthcare providers that comes from payments for providing care to patients. The tax funds MinnesotaCare, a health insurance program for residents with low incomes. In 2024, the provider tax rate is 1.8%. 

In its lawsuit filed in a Minnesota federal court, the Labor Department alleges that BCBSM secretly passed the cost of the tax to self-funded employer health plans as part of the negotiated rates it pays to providers. State law does permit the tax obligation to be transferred from providers "to third-party contracts for the purchase of health care services on behalf of a patient, but the provider must specifically request the tax transfer."

"BCBSM has for years unilaterally caused the self-funded health benefit plans for which it serves as third-party administrator to compensate BCBSM in-network providers for amounts they owe under a Minnesota provider tax — amounts the providers never billed or passed on to the plans — without authority to do so under the plans' governing documents," the lawsuit says.

Between 2016 and 2020, BCBSM allegedly collected at least $66.8 million from self-funded plans under the provider tax. The payer currently serves as third-party administrator to 370 self-funded plans in Minnesota.

"By exercising discretionary authority over the plans in this way, BCBSM acted as a fiduciary of the plans and violated ERISA's fiduciary standards and prohibited transaction rules by serving its own interests over those of the plans," the lawsuit alleges.

"While we cannot comment on specifics of active litigation, Blue Cross and Blue Shield of Minnesota strongly believes the underlying claims in the Department of Labor lawsuit are without merit and based on unsupported interpretations of the MinnesotaCare Provider Tax law," a BCBSM spokesperson told Becker's. "Our negotiated payment rates incorporate all applicable taxes and fees and reflect our commitment to ensuring every member has access to affordable, high-quality care. We look forward to actively defending our position throughout the legal process."

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